Which road to automaker solvency?

As GM, Ford, and Chrysler ask Congress for a bailout, University of Chicago scholars have their own opinions on what should happen to the Big Three automakers.

On the Becker-Posner blog economics professor Gary Becker, AM’53, PhD’55, explains why he believes the companies should be allowed to go bankrupt: "Bankruptcy would help GM and Ford become more competitive by abrogating significant parts of their labor contracts with the UAW."

His blog partner, senior Law School lecturer Richard Posner, disagrees. The auto companies, he writes, "should be kept out of the bankruptcy court until the depression bottoms out and the economy begins to grow again." It would be similar to what happened with United Airlines after 9/11.

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Law School professor Douglas Baird, meanwhile, said on NPR it's possible that neither solution will help GM. The company has had problems paying creditors and retirees for decades, he said, "so why do we think that if we give them a month or two months' breathing space, somehow it's going to magically figure out the solutions to its problems?" He added, "There's nothing about a government bailout or Chapter 11 that's going to fix the underlying economic problems that a firm faces."

A.B.P.

November 19, 2008